Commercial Bank International P S C : Basel III Pillar 3 Disclosures 2021 - Download

Commercial Bank International P.S.C.

Basel III - Pillar 3 Disclosures

31 December 2021

Table of Contents

S No	Particulars Page No

Contents

Introduction..................................................................................................................................................... 4

• 1.1 Basel Regulatory Framework ...................................................................................................... 4

• 1.2 Group Structure-Information on Subsidiaries ......................................................................... 5

Overview of Risk Management and RWA ................................................................................................. 6

• 2.1 Bank's Risk Management Approach (OVA) ................................................................................ 6

• 2.2 Key metrics at consolidated group level (KM1) ........................................................................ 11

• 2.3 Overview of RWA (OV1) ........................................................................................................... 13

Linkages between Financial Statements and Regulatory Exposures ................................................. 14

3.1 Differences between accounting and regulatory scopes of consolidation and mapping of

financial statement categories with regulatory risk categories (LI1) ......................................................... 14

3.2 Differences between accounting and regulatory scopes of consolidation and mapping of

financial statement categories with regulatory risk categories (LI2) ......................................................... 15

3.3 Main sources of differences between regulatory exposure amounts and carrying values in

financial statements (LIA) ........................................................................................................................... 15

Prudential Valuation Adjustments (PV1) .................................................................................................. 15

Composition of Capital ................................................................................................................................ 16

• 5.1 Composition of Regulatory Capital (CC1) ................................................................................. 16

• 5.2 Reconciliation of Regulatory Capital to Balance Sheet (CC2) ................................................... 19

• 5.3 Main Features of Regulatory Capital Instruments (CCA) .......................................................... 20

Macroprudential Supervisory Measures (CCyB1) .................................................................................. 21

Leverage Ratio ............................................................................................................................................. 21

• 7.1 Summary Comparison of Accounting Assets vs Leverage Ratio Exposure Measure (LR1) ...... 21

• 7.2 Leverage Ratio Common Disclosure Template (LR2) (AED 000s) .......................................... 22

Liquidity Risk ................................................................................................................................................ 23

• 8.1 Liquidity Risk Management (LIQA) ........................................................................................... 23

• 8.2 Liquidity Coverage Ratio (LIQ1) ................................................................................................ 25

• 8.3 Net Stable Funding Ratio (LIQ2) ............................................................................................... 25

• 8.4 Eligible Liquid Assets Ratio (ELAR) ............................................................................................ 25

• 8.5 Advances to Stables Resource Ratio (ASRR) ............................................................................. 26

Credit Risk .................................................................................................................................................... 27

• 9.1 General Qualitative Information about Credit Risk (CRA) ........................................................ 27

• 9.2 Credit Quality of Assets (CR1) ................................................................................................... 29

• 9.3 Changes in stock of defaulted loans and debt securities (CR2) ................................................ 29

• 9.4 Additional disclosure related to the credit quality of assets (CRB) .......................................... 29

• 9.5 Qualitative disclosure requirements related to credit risk mitigation techniques (CRC) ......... 35

• 9.6 Credit risk mitigation techniques - overview (CR3) ................................................................. 35

• 9.7 Qualitative disclosures on banks' use of external credit ratings under the standardised

approach for credit risk (CRD) .................................................................................................................... 36

9.8 Standardised approach - credit risk exposure and Credit Risk Mitigation (CRM)

effects (CR4) ............................................................................................................................................... 37

9.9 Standardised approach - exposures by asset classes and risk weights (CR5) .......................... 38

Counterparty Credit Risk (CCR) .......................................................................................................... 38

• 10.1 General Qualitative Information about Credit Risk (CCRA) ...................................................... 38

• 10.2 Credit risk (CCR) exposure by approach (CCR1) ....................................................................... 39

• 10.3 Standardised approach - CCR exposures by regulatory portfolio and risk weights (CCR3) ..... 39

• 10.4 Composition of collateral for CCR exposure (CCR5) ................................................................. 40

Securitisation (SECA) ........................................................................................................................... 40

Market Risk ............................................................................................................................................. 40

12.1 General Qualitative disclosure requirements related to market risk (MRA) ........................... 40

12.2 Market risk under the standardised approach (MR1) .............................................................. 41

Interest rate risk in the banking book .................................................................................................. 41

13.1 IRRBBA Risk Management Objectives and Policies (IRRBBA) ................................................... 41

13.2 Quantitative information on IRRBB (IRRBB1) ........................................................................... 42

Operational Risk (OR1) ........................................................................................................................ 42

14.1 Qualitative disclosures on operational risk .............................................................................. 42

Remuneration Policy (REMA) .............................................................................................................. 45

15.1 Remuneration Policy ................................................................................................................ 45

15.2 Remuneration awarded during the financial year (REM1) ....................................................... 48

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Introduction

This Basel III - Pillar 3 Report for Commercial Bank International ("CBI" or "the bank") has been prepared in accordance with the public/ market disclosure requirements and guidelines in respect of Pillar 3 of Basel III, as prescribed by the Central Bank of the UAE (CBUAE) and other clarifications received from time to time along with the Formal Disclosure Policy of the Bank.

The purpose of this report is to inform market participants of the key components, scope and effectiveness of the Banks risk measurement processes, risk profile and capital adequacy. This is accomplished by providing consistent and understandable disclosure of the Bank's risk profile in a manner that enhances comparability with other institutions.

The Bank has adopted the Standardized Approach for determining the capital requirements for Credit Risk, Market Risk and Operational Risk. This Pillar 3 Report provides details on the Banks risk profile by risk asset class, which form the basis for the calculation of the capital requirement.

Pillar 3 Disclosures 2021

Pillar 3 complements the minimum capital requirements and the supervisory review process. Its aim is to encourage market discipline by developing disclosure requirements which allow market participants to assess specified information on the scope of application of Basel III, capital, particular risk exposures and risk assessment processes, and hence the capital adequacy of the institution. Disclosures consist of both qualitative and quantitative information and are provided at the consolidated level.

The CBUAE issued Basel III capital regulations, which came into effect from 1 February 2017 introducing minimum capital requirements at three levels, namely Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Total Capital. Additional capital buffers (Capital Conservation Buffer and Countercyclical Capital Buffer - maximum up to 2.5% for each buffer) introduced are over and above the minimum CET1 requirement of 7%.

In November 2020, CBUAE issued revised standards and guidelines for Capital Adequacy in UAE. The new version to the Standards also includes additional Guidance on the topics of Credit Risk, Market Risk, and Operational Risk.

1.1 Basel Regulatory Framework

The Basel Accord framework consists of following three main pillars:

• • Pillar I - defines the regulatory minimum capital requirements by providing rules and regulations for measurement of credit risk, market risk and operational risk;

• • Pillar II - addresses a Bank's Internal Capital Adequacy Assessment Process("ICAAP") for assessing overall capital adequacy in relation to risks other than Pillar I. Pillar II also introduces the Supervisory Review and Evaluation Process ("SREP"), which is used as a tool to assess the internal capital adequacy of banks; and

• • Pillar III - complements the other two pillars and focuses on enhanced transparency in information disclosure, covering risk and capital management, including capital adequacy which encourages market discipline and allows market participants to assess specific information.

Verification

The Pillar 3 disclosures for the year ended 31 December 2021 have been appropriately reviewed by the management and internal audit.

1.2

Group Structure - Information on Subsidiaries

Commercial Bank International P.S.C. (the "Bank") is a public shareholding company with limited liability incorporated under an Emiri Decree Number 5/91 on 28 April 1991 by His Highness Ruler of Ras Al-Khaimah. The registered office of the Bank is at P.O. Box 793, Ras Al-Khaimah. The Bank is listed on the Abu Dhabi Exchange (Ticker "CBI"). The Bank carries on commercial banking activities through its branches in the United Arab Emirates ("the UAE").

Details of the Group's subsidiaries at the end of reporting period is as follows:

Subsidiary	Principal Activity	Principal place of Business	Place of incorporation	% of Ownership
International Financial Brokerage LLC*	Brokerage	Dubai - the UAE	Dubai - the UAE	99.4
Takamul Real Estate	Real estate	Dubai - the UAE	Dubai - the UAE	100
Al Khaleejiah Property Investments LLC	Real estate	Sharjah - the UAE	Sharjah - the UAE	52.8
Al Caribi Development Limited	Real estate	Antigua and Barbuda	British Virgin Islands	100
CBI Financial Services Limited	SPV	Dubai - the UAE	Cayman Islands	100
CBI Tier 1 Private Ltd	SPV	Dubai - the UAE	Cayman Islands	100

Note: International Financial Brokerage is a dormant entity, the brokerage operations have been discontinued on 1st July 2018. It is under liquidation.

The consolidated financial statements incorporate the financial information of the Bank and its subsidiaries International Financial Brokerage LLC (the subsidiary - IFB), Takamul Real Estate Company (the subsidiary - TRE) and other entities mentioned in Table 1 below, collectively referred to as the "Group" as of 31st December 2021.

The subsidiary - IFB is a limited liability company registered in the Emirate of Dubai and acts as a broker for customers trading in shares and securities on the Dubai Financial Market and the Abu Dhabi Exchange. The Bank owns 99.40% of the subsidiary - IFB. The subsidiary - TRE is a limited liability company registered in the Emirate of Dubai and acts as a real estate broker. The Bank owns 100 % of the subsidiary - TRE.

For the purpose of Basel III capital adequacy reporting, only the financial subsidiaries are consolidated i.e. IFB is consolidated for Capital Adequacy Reporting. Commercial subsidiaries are excluded from consolidated regulatory reporting and therefore TRE and other Commercial entities are deconsolidated for Regulatory capital reporting.